Economics and Reality

Economics and Reality

Economics and Reality

Economics and Reality

Synopsis

There is an increasingly widespread belief that modern economics is irrelevant to understanding the real world. Economics and Reality traces this belief to the failure of economists to match their methods with their subject, showing that formal, mathematical models are unsuitable to explain social realities.

Tony Lawson examines the various ways in which mainstream economics is rooted in positivist philosophy and examines the problems this causes. He focuses on the interaction of human agency and social structure and how understanding this phenomena can be used to transform the nature of economic practice and policy.

-- Controversially argues that modern economics has almost no value

Excerpt

Contemporary academic economics is not in a healthy state. Over many years now problems have regularly come to light which throw considerable doubt on the capacity of many of its strands to explain, or even always to address, real world events or to facilitate policy evaluation. Such problems especially beset the rather dominant ‘mainstream’ or ‘orthodox’ project, centring on econometrics and formalistic ‘economic theory’, which is my main concern here. This unhappy situation, moreover, appears to be increasingly recognised both inside and outside of the academy.

On the outside, for example, the (UK) Observer Magazine (20 September 1992:7) concludes that ‘there’s no such thing as economics. It’s all voodoo, bluff and pseudo-science’. New Scientist (31 October 1992: 26-31) even carried sketches of economists forecasting economic variables by reading lines on the palms of their hands and of econometricians pushing numbers around while blindfolded. Donaldson (1984) sums up this sentiment in reporting ‘a growing suspicion that in fact economists may not be very good at dealing with the real problems which face us’ (Donaldson, 1984:11). It seems that the ‘charge against economists is, above all, that of irrelevance’ (ibid.: 13).

Within the economics’ academy, the unsatisfactory nature of the prevailing state of affairs appears increasingly to be acknowledged by non-orthodox and orthodox economists alike. In truth, non-orthodox economists have long recognised and emphasised it (see, for example, references in Hodgson, 1988). It is noteworthy, however, that those mainstream economists who reflect upon the nature and state of the discipline are increasingly also found to be airing some concern. The field of econometrics, for example, has witnessed a stream of contributions with such titles as ‘Econometrics—Alchemy or Science?’ (Hendry, 1980) or ‘Lets take the con out of Econometrics’ (Leamer, 1983). In the latter Leamer observes that ‘after three decades of churning out estimates, the econometrics club finds itself under critical scrutiny and faces incredulity as never before’ (p. 42), and goes so far as to suggest that ‘hardly anyone takes anyone else’s data analyses seriously’ (p. 37). At the same time ‘economic theory’ or ‘pure theory’, that most prestigious strand of contemporary economics, including its traditional exemplar general equilibrium theory, recently seems also to have been recognised as a project in dire straights. The upshot here is a bout of articles with such titles as ‘The Intrinsic Limits of Modern Economic Theory: The Emperor has no clothes’ (Kirman, 1989), or books with such titles as Economics in Disarray (Wiles and Routh (eds), 1984), The Crisis in Economic Theory (Bell and Kristol, 1981) or ‘The Death of Economics’ (Ormerod, 1994), and commentaries by ‘pure theorists’ such as Hahn (1991) effectively acknowledging the demise of his long term hopes of successes for the project. One Nobel Memorial Prize winner in economic science despairs of the whole contemporary project, viewing it as basically an arbitrary activity which singularly fails to advance understanding: